• SingTel Share Price is at over a decade low (-36% YTD). At current levels, investors are getting its core domestic and Optus businesses for free, with the value of its regional associates usurping the group’s market capitalisation. Investors should look beyond near-term earnings challenges, with the stock offering > 5% yield.
• Reiterate BUY on SingTel (SGX:Z74), with new SOP Target Price of SGD3.10 from SGD3.20, 44% upside plus 5% yield.
• Key re-rating catalysts: stronger-than-expected earnings, easing competition and value unlocking from the disposal of non-core assets.

SingTel's Earnings Malaise to Drag on for at Least Another Quarter

• The COVID-19 pandemic and movement restrictions are expected to prolong SingTel’s earnings recovery. We gather from management that the weakness in mobile (roaming and usage) and enterprise revenues (project delays and deferments) is likely to persist, albeit, at a moderate pace relative to 1QFY21 (Mar).
• SingTel's earnings recovery is also punctuated by elevated competition and structural issues such as fixed margin erosion from the migration of cable customers to the NBN network in Australia.
• We cut SingTel's FY21F-23F core earnings by 8-14% after imputing weaker Singapore consumer and enterprise contributions and Optus.

5G Off to a Less Rosy Start Ahead of Commercial Launch Next Year

• SingTel’s trial 5G service (Singtel 5G) on the 3500MHz and 2100MHz bands was launched on 1 Sep, about two weeks after StarHub (SGX:CC3)’s (NEUTRAL, Target Price: SGD1.30, see report: StarHub - RHB Invest 2020-08-10: 2Q20 Weak As Expected; 5G Capex Surprise) own trial rollout, and will run until end-December, ahead of full commercial launch in 2021. It is charging a SGD10/mth premium for 5G – or a 4-23% increase over current 4G plan subscriptions (Combo and XO packages) – which comes with additional 10GB data.
• While the take up of the service has been promising (free offer for first 20,000 trial customers fully redeemed), it failed to measure up to the significant hype generated, no thanks to COVID-19 which has sapped consumer sentiment and pummelled equipment/handset sales.
• SingTel (and the industry) hopes to be able to capitalise on 5G to instil greater price discipline (ie lower competition) and drive stronger data monetisation in the longer-term.

Yuen Kuan Moon Takes Over the Rein in Jan 2021

• SingTel has announced that its current CEO of the Singapore consumer business, Yuen Kuan Moon will succeed Chua Sock Koong as the group CEO from 1 Jan 2021. Ms Chua has been with the group for over three decades (13 years as group CEO).
• Yuen Kuan Moon joined SingTel in 2003 and has taken on numerous leadership roles across the group, including at Telkomsel. He takes over the leadership in the most challenging of times, with the pandemic exerting significant pressure on group profitability and the rollout of 5G. We do not foresee a major departure of the group’s strategic direction and focus from the transition.

Source: RHB Invest Research - 2 Oct 2020